UK annual inflation jumps on higher energy bills

LONDON: Britain’s annual inflation rate jumped more than expected in October to back above the Bank of England’s target as households and businesses faced higher energy bills, official data showed Wednesday.

The Consumer Prices Index reached 2.3 percent from a three-year low of 1.7 percent in the 12 months to September, the Office for National Statistics said in a statement.

CPI was last at 2.3 percent in April, the ONS added in a statement, while analysts’ consensus had been for the rate to climb back to 2.2 percent.

The Bank of England (BoE) target stands at 2.0 percent.

“Inflation rose… as the increase in the energy price cap meant higher costs for gas and electricity compared with a fall at the same time last year,” ONS chief economist Grant Fitzner said of October’s data.

Britain’s energy regulator Ofgem sets a price cap quarterly that suppliers can charge customers. The latest increase in October was 10 percent but this is expected to drop markedly in January according to forecasts.

The regulator had cited rising prices on international energy markets owing to increasing geopolitical tensions, and extreme weather events driving competition for gas, as the reasons behind the sharp rise.

Cost of living

“We know that families across Britain are still struggling with the cost of living,” senior Treasury official Darren Jones said in reaction to Wednesday’s inflation reading, adding that the Labour government needed to do more to help.

Analysts said despite prices rising faster than expected, the BoE remained on course to keep cutting British interest rates.

“But it lends some support… that the Bank will skip the December meeting and cut rates only gradually, by 25 basis points in February and at every other policy meeting until rates reach 3.50 percent in early 2026,” forecast Ruth Gregory, deputy chief UK economist at Capital Economics research group.

The central bank earlier this month trimmed borrowing costs by 25 basis points to 4.75 percent.

Following its decision, the BoE added that a maiden budget from Britain’s Labour government in October, featuring tax rises and increased borrowing, would boost growth but also lift inflation.

In August, the BoE reduced its key rate for the first time since early 2020, from a 16-year high of 5.25 percent as UK inflation returned to normal levels.

UK inflation had soared to above 11 percent in October 2022, the highest level in more than four decades, as the Russia-Ukraine war cut energy and food supplies, sending prices soaring.